Corion Capital’s David Bacher unpacks asset class and fund performance data for the month of September, which turned out to be a turbulent month for all asset classes. The Corion Report (attached below for ease of reference) is an informative and comprehensive summary of the price action for the month. Bacher notes that although the JSE was down around 5%, similar drawdowns were experienced in the US – where the S&P 500 and tech heavy Nasdaq were down 5% and 6% respectively. Lastly, Bacher mentions the importance of diversification, outlining that no one asset class nor fund manager can perform continuously. – Justin Rowe-Roberts
David Bacher on September being a turbulent month for all asset classes:
As you said, it was a tough market. It wasn’t just equities but really across the board with very little places to hide. If you’re investing in South African fixed interest assets, you were down more than 2%. Global bonds, you were down more than 2%. Emerging markets you had down 4%. Although South Africa – in dollar terms – was down about 5% on the back of a weak equity market and also a weaker currency. It wasn’t out of line with international markets, so you had the Nasdaq down almost 6%, S&P down approximately 5%. It was very much a global fear of China specifically coupled with the fear of raising interest rates. In the US 10 year bond going from – around the start of the month – around 1.3% and it ended the month close to 1.5%. So fears of increasing interest rates was an additional worry, in addition obviously to China fears.
On hedge funds being a good diversification tool during uncertainty:
Absolutely. I think in South Africa, we are fortunate to have a lot of very successful hedge funds. I think what’s nice about hedge fund managers is that they look at the broader market. What you saw in the South African context is large caps, the biggest shares in the market really being under pressure. But if you look at the South African market and you look at the small caps and the mid caps, I mean there are a lot of shares in that basket that have more than doubled. What you find in a lot of hedge fund managers is that they play broader and not only being able to go short, but also having a broader universe and not benchmark cognisant. We’ve been looking at the numbers today, quite a lot of hedge fund managers who are nicely up in what was a difficult market precisely for the larger caps.
On PSG funds outperforming the broader market:
I think one always has to look a little bit beneath just the return number. So if you look at PSG and also Andrew Vintcent from ClucasGray – also a very good manager – but they’re playing the same universe at the moment, and that has been – as I said – small caps, which have performed really well. The shares that were, you know, ridiculed a year ago. Who would have thought that you would want to be invested in SA small caps? And as a result of both those managers having lots of exposure a bit too early in the market, you rewind the clock back and a lot of investors lost patience. But if you stayed the course, you would be reaping those benefits. So what’s really driven those houses returns have been going against the grain, seeing where value is best offered at the moment.
On the importance of diversification:
No matter what asset class or asset manager you look at, no one performs continuously all the time. And at the end of the day, you have to go and back your investment philosophy. And as a house at Corion, we believe deeply in valuations. So just because the last five years have shown poor performance, it’s got nothing to do with how the next five years are going to play out.
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Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa’s rise to presidential power, narrated by our very own Alec Hogg.
Narration by Alec Hogg